Mitchell Morgan Nominees v Vella [2011] NSWCA 390

This Court of Appeal decision involved a forged mortgage. The lender’s solicitor chose to use an all monies mortgage which meant the mortgage was unenforceable. Had the solicitor used security documents which contained their vital covenants within the registered mortgage, then the mortgage would have been indefeasible and the mortgage would have been enforceable.

The lender sued its solicitors for negligence in choosing to use an all monies mortgage in circumstances where there was no advantage in doing so and when all it achieved was to deny the lender the protection of a registered mortgage.

The trial judge was the then Chief in Equity Peter Young. His Honour applied the law of proportionate liability to the claim apportioning 12.5% of the blame to the solicitors and the balance to the fraudsters following Ginelle Finance v Diakakis [2007] NSWSC 60, where 90% was apportioned to the fraudster and 10% to the solicitor and Chandra v Perpetual Trustees Victoria [2007] NSWSC 694 .

His Honour gave no oblique consideration to the issue of whether it was actually a apportionable claim– stating “There is no doubt that the present is an apportionable claim”. It was this conclusion that was appealed by the lender.

The Court of Appeal decision was given by Giles JA with whom the other four judges agreed. His Honour followed the Victoria Court of Appeal decision of St George Bank v Quinerts.  That decision was based on a House of Lord decision which Giles JA quoted from with approval:

The entitlement to contribution applies only where the person from whom the contribution is sought is liable for the same harm or damage, whatever the legal basis of his liability. But the mere fact that two or more wrongs lead to a common result does not of itself mean that the wrongdoers are liable in respect of the same damage. The facts must be examined more closely in order to determine whether or not the damage is the same

Then applying this reasoning to the Vella case and the NSW legislation he stated:

There is a well-recognised distinction between “damage” and “damages” . . . for s35, the economic interest should not be identified at the general level of not being financially worse off. That would merge damage with damages . . . At the correct level of identification, in the present case there are different interests. Mitchell Morgan could be fraudulently induced to pay out money. It could protect itself and avoid losing the money if it obtained adequate and enforceable security. The loss, or the harm to an economic interest, is in the one case paying out money when it would not otherwise have done so, and in the other case not having the benefit of security for the money paid out. The losses the subject of the claims for economic loss against Messrs Caradonna and Flammia and the loss the subject of the claim for economic loss against Hunt & Hunt are different.

His Honour went on to provide a useful way of determining when the types of losses are different and therefore unaportionable:

I assume that in dollar terms the measure of Mitchell Morgan’s compensation for the fraud of Messrs Caradonna and Flammia and for the negligence of Hunt & Hunt would in both cases be the same. But it will not always be so. When mortgage security is insufficient the loss in dollar terms may not be the same as the amount lent. The dollar amount will reflect the value of the security, which may be less than the amount lent. Loss is suffered not because the money was lent, but because it can not be recovered from the security.

This analysis when applied to valuer liability means that if the measure of damages is different between a potential concurrent wrongdoer and the valuer there will be no apportionment. This view is supported by the decision of the Victorian Court of Appeal in Quinerts:

The Borrower cannot be said to have caused or be liable for ‘the same damage’ as the valuer. The loss or damage caused by the Borrower was his failure to repay the loan. Nothing which the valuer did or failed to do caused the Borrower to fail to repay the loan. The damage caused by valuer was to cause the Bank to accept inadequate security from which to recover the amount of the loan.

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